South African Finance Minister Tito Mboweni will unveil the 2019 budget in an address to parliament today. The budget will

Photo: Waldo Swiegers/Bloomberg

South African Finance Minister Tito Mboweni will unveil the 2019 budget in an address to parliament today.

The budget will prioritise bailing out a government-owned power utility, Eskom. As Eskom provides over 90% of South Africa’s electricity, its frequent power cuts have hindered business. This is particularly true for some economic staples, like mining firms, which rely on large amounts of electricity to enter deep gold and platinum mines.

Given Eskom’s large $30 billion debt—equivalent to 8.5% of South Africa’s 2018 GDP, or 15% of the national debt—it would likely have defaulted on its payments and declared bankruptcy in April without assistance.

The large bailout package could cover nearly all of Eskom’s debt. As such, President Cyril Ramaphosa’s promises of improving school infrastructure and lowering the 27.5% unemployment rate appear difficult to achieve. The economic growth rate forecast for 2019 may even trim by half a percent to 1.5%. Meanwhile, projections of South Africa’s debt-to-GDP ratio predict an increase from 53.1% to 60% in the next two years.

Thus, expect today’s bailout package to salvage Eskom, while exacerbating long-term government debt. However, with national elections slated for May 8, Mr Ramaphosa’s government may actually benefit in the polls amid these ongoing economic difficulties, as the bailout will preserve nearly 50,000 South African jobs.

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